Archive for the ‘Uncategorized’ Category

There are many entrepreneurs that I follow on Twitter who constantly tweet about how much fun they’re having at their startup, or how great their team is, or how late they stay up working on their company, or how many great things are in the pipeline, etc. Frankly, it’s mildly annoying. All of these sentiments SHOULD exist in your startup and thus it isn’t necessary to tell the world about it on a daily basis. I’m a big proponent of preserving a startup culture as much as possible, but that can be achieved without broadcasting so much cheese. You don’t see the likes of Andrew Mason, David Karp or Dennis Crowley constantly throwing out the startup cheese, and I doubt people like Jeff Bezos or Sergey Brin would have done it back in the day had Twitter existed then. While I think it’s imperative to show excitement and passion for what you’re building, and thus tweet about it from time to time, it gets a bit annoying when you tweet about it regularly. Stop talking and just build it. 🙂

One of the most respectable character traits in someone is passion. I get a great sense of enjoyment out of a conversation with someone who loves what they do, takes pride in what they do and tries to constantly improve their craft. That previous sentence may sound obvious, but the key is that it doesn’t matter what that person does. He or she could be a street cleaner, or a chef, or a construction worker, or a hedge fund manager. Frankly, the trade they’re in doesn’t matter. All that matters is that they want to be the best at what they do. Just show me your passion!

Such was the sentiment surrounding the microwave oven in the early 1970’s. This device was a high-priced wonder, with several companies rushing in to the market to capitalize on the hype. In cities across the U.S., traveling salespeople conducted demonstrations whereby they cooked beef tenderloin in minutes and potatoes in seconds, leaving onlookers in amazement. Early models sold for as much as $500.

Sharp ad in 1972

GE ad in 1972

The microwave oven was a revolutionary technological development. It enables us to heat foods and liquids in much abbreviated time. Yet despite its promise and capability, the microwave oven did not dislodge the conventional oven. There are certainly uses for which cooking with a microwave oven is preferable, but for most cooking applications a microwave oven is never even considered.

Information streams, and the associated real-time search they enable, give us great insight to current sentiments and events happening at the moment. I need not elaborate on the value of this data. However, this value of real-time information is only relevant for a small percentage of searches (e.g. current events and current sentiments). Try searching for information about the new Yankee Stadium, or music festivals in Europe this summer, or things to consider when selecting the right breed of dog for your family, and I can assure you that Google is a better resource than Twitter.

Hurricane Andrew decimated Miami in August 1992. Its powerful winds ripped the front and back doors off our house and carried one of our skylights down the block, while the accompanying rain soaked all of our walls and left three inches of water throughout most of the house. The aftermath of Hurricane Andrew was one of the darkest moments of my 14-year-old life. Driving around the city conjured up images of a war-torn or third-world country, families clutching each other sobbing over the rubble that was once their home.

And then there were the assholes selling bags of ice for $10 each. They knew that almost everyone in Miami was without electricity and had to preserve as much of their perishable food as possible. The sellers had all the power (no pun intended). Sure, temporary market forces allowed them to charge such egregious prices, and capitalists may say these ice-swindlers were being adequately compensated for their scarce asset. But in my view this was an insensitive and disgusting practice of price gouging.

Right now our economy is in a reverse situation. Buyers have all the power. As consumers [or VC investors], we are justified in seeking a good deal on a new sofa [or a startup], but we must make sure we do not exploit the situation like the guys selling bags of ice for $10. While temporary market forces may allow us to exploit sellers, it would be insensitive and ugly to do so. Just as what goes up must come down, what goes down eventually comes back up; and what will distinguish you from your neighbor is your reputation.

As a footnote, in the aftermath of Hurricane Andrew, Home Depot stores in South Florida sold their wares at cost for one month. The brand equity and loyalty this engendered was felt for years afterwards.

A couple days ago I went to a panel on revenue-share deals. The event was organized by the Columbia Business School Alumni Club, and companies represented on the panel were GoogleTV, Kaboose, Thumbplay and KickApps. Below are some of the key takeaways from the discussion:

Ad inventory share is preferable to a revenue share because each side controls its allotted inventory and thus its cleaner

KickApps migrating to subscriptions and away from rev share, due to declining ad market

These days you line up a sponsor prior to paying for licensing content

Thumbplay has spent $40m per year acquiring customers

Google TV sells the inventory that is not sold in bundle with internet and product placement

Rev share deals should be boiler plate and standardized, particularly for unproven publishers; standard payment terms; deals can get renegotiated once performance is proven

Audit language is not a contentious topic; there’s a lot of trust-based accounting

Google pays every 30 days like clockwork; they haven’t mastered working capital tricks

Promotion in exchange for exclusive content is a fair trade (e.g. Coldplay on iTunes commercial)

CPA is the same as PI (per inquiry) advertising on TV

Do whatever it takes to get a reference account

The app is the new hit single; Apple’s commercials are all about apps now and not music

Now over 50% of ad campaigns have custom integration work; it ussed to be 20%; the reason being that you now have to do more work to maintain the same level of CPM

Advertisers won’t take on small affiliate sites on CPM basis; rather will put them on affiliate program

2 million pageviews per month is the baseline for a small publisher to make money from advertising

Every so often I see a pitch from a startup who’s product can do a multitude of things for a multitude of industries. An example is as follows, taken directly from an executive summary I just read (I have omitted the name of the company):

[Company] offers world-class technology, branded under the [product] label that represents a secure, digital communications platform that couples the ubiquity of the internet with access to virtually every known telecommunications protocol to connect organizations, people, machines, computers and physical infrastructure in both emergency and routine situations…. and supports a diversity of applications in industry, commercial business, government, military and residential sectors.

You can’t be everything to everyone. Not only does such a claim tax credulity, it also shows a lack of focus from management. Pick one or two things your company is great at, and then target one or two industries. Once you have proven your worth in those industries, then it is okay to expand to other industries and to augment your offering. As a startup you need to be able to summarize your business in one sentence without invoking ironic laughter.

I believe bitly will be one of the more successful startups out of New York in the past few years. Critics posit that it is just another URL shortening service and it will die if Twitter creates its own shortening tool. I disagree. Yes, bitly has achieved incredible growth and adoption thanks to Twitter, but its business model does not rest upon the microblogging platform. I believe bitly can survive beyond the twitter ecosystem. The analytics it provides can be valuable to small- and medium-sized businesses conducting their own email marketing campaigns (whether through Constant Contact or an in-house system). The timeline component illuminates the effects of externalities on a message’s response rate. This understanding is priceless for an email marketer. Additionally, bitly links can be placed behind banner ads for more robust reporting.

Beyond marketing uses, a bitly link within an email tells me how many recipients have read my email, closing the loop on the message without using a read receipt. Plus I can safely assume if the email was forwarded on to other people. For example, if I send an email containing a bitly link to 3 people, and bitly tells me the link has been clicked 6 times, there is a good chance the email was forwarded to others (of course it is possible that each recipient clicked the link twice).

Now on to the bitly vs Digg argument. I like the fact that bitly is more distributed and thus it more accurately represents popularity of content. However, I do not think that the metric used to determine rankings within bitly should be clicks. For example, if Steven Johnson tweets a link to his 270,000 followers, the site behind that link will instantly get a huge number of “votes” simply because of the influence Steven Johnson has, not because the content on the corresponding page is of value to all those people. So clicks on bitly links is more about who says what rather than what is actually said. A better criteria would be the number of bitly links pointing to a page, plus the number of times those links have been retweeted or forwarded somehow. I am not a techie, and so I have no idea whether it is possible to measure how many times a link has been retweeted or forwarded. Yet a “vote” for a webpage is more genuine when it involves attaching one’s reputation to whatever is being linked to, rather than an anonymous click.

Before the days of ATMs, if I wanted cash I had to get it from my bank. It wasn’t particularly convenient because I was at the mercy of the bank’s schedule and limited reach. Furthermore, if I consumed all of the cash the bank gave me, I would have to wait until the next day to get more cash.With the advent of ATMs, the tide switched in my favor.You see, I don’t really care that much about where I get cash from. I just want the ability to get it whenever I want regardless of where I am. While I would prefer that the ATM be associated with my bank because I trust my bank, I ultimately just care about convenience and thus will get cash from the most readily available ATM that has a minimum level of trustworthiness.Banks do offer more value than just dispensing cash, but the vast majority of the time cash is all I want.That is the reason ATMs are here to stay and the old way of getting cash seems absurd.

In the above paragraph, simply replacing the word “ATM” with “blog”, “cash” with “news” and “bank” with “newspaper” yields the following result:

Before the days of blogs, if I wanted news I had to get it from my newspaper. It wasn’t particularly convenient because I was at the mercy of the newspaper’s schedule and limited reach. Furthermore, if I consumed all of the news the newspaper gave me, I would have to wait until the next day to get more news.With the advent of blogs, the tide switched in my favor.You see, I don’t really care that much about where I get news from. I just want the ability to get it whenever I want regardless of where I am. While I would prefer that the blog be associated with my newspaper because I trust my newspaper, I ultimately just care about convenience and thus will get news from the most readily available blog that has a minimum level of trustworthiness.Newspapers do offer more value than just dispensing news, but the vast majority of the time news is all I want.That is the reason blogs are here to stay and the old way of getting news seems absurd.

I find that to be rather interesting! Now newspapers just need to learn to embrace the tidal shift and monetize it.

Fiat used to be the laughingstock of the automobile industry. The Italian company was defined by employee strikes, staggering financial losses and flopped car launches. Fiat had gone through four CEOs in the three years leading up to 2004. That is when Sergio Marchionne took the wheel (pun intended). Thanks mostly to Sergio’s leadership, Fiat has been operating solidly in the black and now sets the industry standard for time to bring a new model to market. In short Sergio Marchionne resuscitated a dead company and made it a class leader. Amazingly, Sergio came to Fiat with no prior experience in the auto industry and was practically a foreigner since he left Italy in 1966.

While many companies place a big emphasis on industry experience when recruiting employees, they may be better served looking for the character traits that underlie progress and success. Sergio Marchionne was able to achieve what he did because at his core he is an exceptional leader: he sees the talent locked within others, he allows others to take initiative, he sets ambitious goals, he holds people accountable and he questions the norm. These virtues are instinctive and not a product of industry experience.

I have heard many entrepreneurs say that if they knew just how challenging it would be to start their respective business, they would have highly considered jumping ship at the beginning. To a certain degree ignorance is bliss. Dreamers achieve things because they don’t know that they can’t.

Experience is important for many obvious reasons. However, it can also restrict people to continue thinking within the box. It can stifle people by making it comfortable to simply accept the norm rather than challenge it. For example, the past year my VC firm has been looking at a company that will serve car rental agencies. This startup’s COO was the former VP of Hertz Global who was in charge of worldwide fleet operations. Last year we asked the company to go out and land a contract with Hertz, but they never even attempted it because the COO said Hertz would not do business with such a young company. Therefore, we kindly told the startup we were not willing to make an investment yet. The startup subsequently replaced that COO and proactively reached out to Hertz. Last month Hertz signed a one-year exclusive contract with the company.

Now imagine you were in charge of recruiting for an auto company and you were looking at the resumes of Sergio Marchionne and that former VP of Hertz Global. You would not get fired for going with the guy that has auto industry experience. But you also wouldn’t get the kind of success that Sergio Marchionne has brought to Fiat. Be sure to look at the big picture and not be myopic about industry experience.

Yesterday Fitch Ratings issued a report showing that charge-offs on credit cards hit a three-year high last month, up 49% from a year ago, while payments more than 60 days past due were 34% higher than they were in July. The perfect storm is forming…